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In an interview with ET Now, Naresh Takkar , MD, ICRA, talks about the current market scenario and rate cut expectations from the RBI. Excerpts:

ET Now: By when do you see RBI cutting the interest rates?

Naresh Takkar: We believe a rate cut is likely in Q4. In this announcement, we would expect some measure to increase the liquidity in the system and possibly, we could look at a 25 bps reduction in the CRR. We also expect significant amount of open market operations by the RBI because, to control the volatility in the forex market, we would expect some RBI intervention. However, for the year end, a rate reduction is expected around 15 bps or so.

ET Now: How do you see inflationary expectations shaping up? Do you think that although inflation is likely to cool off in the Jan-March quarter, inflationary expectation will continue to remain high?

Naresh Takkar: A kick variable really would be how the crude oil prices move internationally and also how the currency movements have an impact. So those variables would be very important to monitor. Otherwise we had seen some stabilisation or moderation in the core inflation number. The headline number would be really a function of the commodity prices as well as the currency movements.

ET Now: A majority of experts believe that the government is unlikely to meet the fiscal deficit target of 5.3%. What is your view on that as well as the overall government borrowing programme?

Naresh Takkar: Because of the overall slowdown, we expect the tax and the revenue collections for the government to slow down as well as the expenditure to remain pretty high. Even if we were to assume that the fuel-related subsidy is not fully passed on in this quarter or fiscal, still we would expect the overall fiscal deficit to be in the range of about 5.6 to 5.7 odd per cent and this would entail about 40,000 to 50,000 crore of additional borrowing. This assumes that, from the disinvestment, the government would be able to mobilise about 20,000 to 25,000 crore.